BERLIN, Jan 28 (Reuters) - Europe and Russia are getting
closer to a deal on how to involve Moscow in bailing out
indebted Cyprus after Russian Prime Minister Dmitry Medvedev
signaled willingness to help.

Medvedev was quoted as saying on Monday that Russia could
provide support to Cyprus under certain conditions but the
island itself and the European Union would have to take the
biggest share in a potential bailout.

The help could come in the form of an extension to a 5-year
2.5 billion euro loan Moscow granted Nicosia in 2011.

Cyprus said earlier this month it had formally launched a
request for a 5-year extension to repay that debt, a step that
could take the immediate heat out of Nicosia's financial woes
and that, according to a German government document, euro zone
finance ministers support.

"We think the main burden to solve these problems should be
taken on by Cyprus and the EU states," Medvedev told the German
business daily Handelsblatt in an interview held on the
sidelines of the World Economic Forum in Davos.

"But we are not refusing to help under certain conditions.
The conditions must be agreed first. Before that, there can be
no money from us," he added.

The Mediterranean island, waiting for a multi-billion euro
bailout after heavy exposure to debt-crippled Greece, has had to
contend with misgivings from lender states on how committed it
is to fighting money laundering and why the island is a magnet
for Russian money.

Cyprus offers the euro zone's lowest nominal corporate tax
rate and has had close political ties with Russia for decades.
Some politicians, especially in Germany, have accused Cyprus of
being a hub for money laundering and a shadowy tax haven.

Last week, European Economic and Monetary Affairs
Commissioner Olli Rehn told Reuters it would only be fair for
Russia to share part of the burden over Cyprus.

"I would think that as there is significant economic and
financial activity by Russia and especially by Russian citizens
and businesses in Cyprus, it would be quite fair that Russia is
making a contribution," Rehn said.

"We have had contacts with Russia but of course they take
their own decisions in their own way," he added.

Medvedev said it was now important for the European Union to
put clear demands to Cyprus.

"It would be better if nobody would lose anything. But most
of all it is now necessary that the EU formulates its demands
clearly on how the Cypriot economy should be cleaned up. Cyprus
is more set than countries like Greece."

Cyprus, one of the smallest euro zone economies, applied for
financial aid from the European Union and the International
Monetary Fund in June last year after its banks were hurt by an
EU-sanctioned writedown of Greek debt held by private investors.

While European Central Bank board member Joerg Asmussen told
Reuters last week Cyprus could derail the euro zone despite its
small size, others still have doubt that a default in the
country, with gross domestic product of just 0.2 percent of the
euro zone's output, could unsettle the bloc as a whole.

German Finance Minister Wolfgang Schaeuble is not yet
convinced it can be seen as a systemic risk, which is a
precondition for a bailout.

Preliminary estimates of a draft bailout deal put the bill
at 10 billion euros for bank support. On that basis, its total
bailout, including fiscal needs, could reach 17-17.5 billion
euros, equivalent to the island's annual economic output.